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How Bernanke Can Get Banks Lending Again

If the Fed reduces the reward for holding excess reserves, banks will have to find something else to do with their money, like making loans or putting it in the capital markets.

By

Alan S. Blinder

July 22, 2012 6:09 p.m. ET

The U.S. economy could use another boost, and it won't come from fiscal policy. Can the Federal Reserve provide it?

Chairman Ben Bernanke keeps insisting that the central bank is not out of ammunition, and in a literal sense he is right. After all, the Fed has not yet exhausted its bag of tricks. It is still twisting the yield curve. It can purchase more assets. It can tell us that its federal funds target interest rate will remain 0-25 basis points beyond late 2014. It can even nudge the funds rate down within that range....